Contract Freighters Inc. in December will begin paying drivers based on Rand McNally practical route miles rather than the industry-standard short route miles. The change is equivalent to a 3.5 percent pay increase for company drivers and owners-operators. Crete Carrier Corp. earlier announced a switch to practical route miles.
J.B. Hunt Transport Services agreed to pay Burlington Northern Santa Fe Corp.’s railway unit $16.5 million to resolve its dispute with the firm. The companies announced last year that they would arbitrate the dispute over an undisclosed amount of revenue generated from their financial and operating agreement. BNSF Railway provides rail transportation services to J.B. Hunt under a joint-service agreement, and the relationship is expected to continue.
Jerry Moyes, chairman and chief executive officer of Swift Transportation, agreed to pay more than $1.2 million to settle charges of insider trading lodged by the Securities and Exchange Commission. Without admitting SEC’s allegations, Moyes will place the paper profits of $622,123.80 from his May 2004 stock purchases in a trust controlled by Swift’s independent directors, pay a civil penalty in the same amount and agree to a decree permanently enjoining him from violating securities laws. SEC is taking no action against Swift.
Yellow Roadway Corp. said its stock is “significantly undervalued” and has authorized a $50 million share repurchase. The LTL carrier said it may buy back shares in the open market based on market price and availability, and that the program has no expiration date.
Insurance costs represent a huge burden for transportation companies. So when the subject of how to reduce this cost arises, a bevy of strategies comes to mind. But there is no silver bullet or quick fix. Effective, long-term savings require a deliberate strategy, consistently applied, according to one industry veteran.
Controllers, CFOs and financial executives of transportation companies often are charged with leading the review of insurance matters and comparing policies and companies. The natural temptation is to judge solely on cost – but if you review the variables that determine overall cost, these financial officers often will find themselves explaining nonfinancial reasons to justify slightly higher costs.
“It’s not always the sexy strategies that really work,” says Stephen Johnson, owner of Marvin Johnson & Associates in Columbus, Ind. “Things like captives only really work if you’re of a large enough size, you are the worst risk in a group, and you read the fine details of the contracts to be sure you limit your liability,” he says.
According to Johnson, jumping around companies is not effective either, and can sting you in ways you never suspected. Remember the old adage: If it sounds too good to be true, it usually is. Even large companies can be lured into contracts that purport huge savings, only to find out later that the insurance never was really in place. So experience and a demonstrated track record are key.
So what’s the most effective long-term strategy for reducing insurance costs? Johnson offers five pieces of advice:
Understand the true cost of accidents. “With a 96 percent operating ratio, an accident that costs you out of pocket $5,000 will require that you bring in $125,000 in revenue just to cover the cost of that accident,” Johnson notes. Spending money to avoid not only the most expensive accidents but also the most common accidents will, in the long run, yield lower insurance and overall costs and higher profitability.
Analyze losses religiously. When claims or losses do occur, work with your agent to analyze the root causes. Often, a lack of procedure in hiring or retention can be traced as the leading cause of problems. “We spend lots of time reviewing losses, and it can be a very revealing process,” Johnson says.
Safety is an attitude that leads to profits. “Safety starts at the top – with the mindset and behavior of all the leaders in the company – and trickles down to each and every driver,” Johnson says. All insurance ultimately goes up the higher the accident frequency, and the absence of a safety attitude leads to more accidents. But it’s not about posters, slogans and videos; a safety culture means making hard choices. For example, you urgently may need more drivers to grow or even to satisfy existing accounts, but if the only drivers you can get in the door have excessive traffic violations or poor safety records, you’re better off passing.
Match your insurance company with your risks. “It may sound strange, but it saves you money in the long run to be with a company that understands specifically your type of operation, your routes, and thus your risks,” Johnson says. Most agencies represent similar markets and offer you similar choices. The best overall strategy is to be with a company with long experience in your segment of the industry and, more importantly, with your region and routes, according to Johnson.
Have staying power to get the best relationships and rates. “The longer you stay with one company, the better the relationship and negotiability of rates and terms you will get.” The best rates happen after being with the company beyond five, six or seven years, and the relationship has become a two-way street, Johnson says. It is only then that the benefits of longer experience, track record and cost savings take effect in terms of policy costs.
If you’re looking for a quick fix, you will have a long search. As with many things in this competitive industry, the tortoise will have a good chance of beating the hare in the long run.
“Managing Risk and Your Insurance Costs: What are Your Options” – courtesy of Truckload Carriers Association. website
“What Does an Accident Cost” – Table to determine your revenue needs to make up out-of-pockets on an accident. website
IRS raises mileage rate for 2005
Due to the recent surge in gasoline prices, the Internal Revenue Service last month announced an increase in the optional standard mileage rates for the final four months of 2005. The rate of 48.5 cents a mile will apply for all business miles driven between Sept. 1 and Dec. 31, 2005. The previous rate was 40.5 cent a mile.
The IRS normally updates the mileage rates once a year in the fall for the next calendar year, but many analysts are predicting a decline in gas prices over coming months, so the agency is holding off on setting the 2006 rate until closer to January.
Check’s in the mail?
The Internal Revenue Service is alerting taxpayers in 13 states that about 30,000 estimated tax payments sent to a San Francisco post office box in early September have been lost in the aftermath of a traffic accident.
The accident occurred on the San Mateo Bridge near San Francisco in the early morning hours of Sept. 11, as a contract courier was delivering mail from the post office to a check-processing facility in Hayward, Calif. The IRS estimates that about 30,000 of the estimated 45,000 tax payments on board the vehicle – mostly Form 1040-ES quarterly estimated tax payments – were ejected into the San Francisco Bay and are not recoverable.
Taxpayers who may be affected include residents of Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Ohio, Oregon, Utah, Virginia, Washington and Wyoming and anyone who mailed an IRS tax payment to the IRS San Francisco post office box between Sept. 1 and Sept. 11.
IRS is working to help taxpayers whose payments were lost in this incident. The IRS encourages taxpayers who believe a payment may have been lost to wait until Sept. 30 before contacting the IRS. This will allow checks that were received to be processed and clear the banking system. After Sept. 30, a taxpayer whose check has not cleared his or her bank should contact the IRS on its toll-free taxpayer assistance line at 800-829-1040.
